US Propane Consumption Soared Last Winter
With the global prices of propane skyrocketing, omestic petrochemical manufacturers that used propane instead of naphtha to make propylene are going to suffer a reduction in their profits.
According to the Korea National Oil Corporation (KNOC) on September 3, the global price of propane, which was traded at a US$435 level per ton in January 2017, jumped to US$590 in January this year. The problem is that the uptrend is expected to even accelerate in the second half of this year. In fact, the price of propane, which had fallen to US$475 in April, soared up to US$600 in September.
The surge in propane price is due to the cold weather in the US last winter. The bitter coldness caused the propane consumption for heating last December and this Januarys to increase by 10.7%, marking the highest consumption level ever. However, due to the shortage of transportation infrastructure, such as pipelines, the supply was insufficient. In fact, production in the Permian region, the largest producer of shale oil in the US, rapidly increased from 900,000 barrels per day in early 2010 to 3.23 million barrels in May this year, but US propane inventories were reduced by 3.5% and 29.1% compared to last year and 2016, respectively. Therefore, there is concern that this situation may repeat this winter.
This kind of changes in the propane market increased a possibility that domestic petrochemical manufacturers that replaced propane as raw material are going to earn less profit.
Currently, domestic companies that import LPG gas (propane and butane) are SK Gas, E1, and Hanwha Total. SK Gas supplies it to petrochemical companies in Ulsan, including Hyosung and Taekwang, while E1 supplies to companies in Daejeon, such as Lotte Chemical and LG Chemical. For the three companies, the US gas accounted for 66% last year, which is more than half of the total imports (4.03 million tons out of a total of 6.08 million tons).
Although the share of LPG imports in the first half of this year has not been calculated yet, LPG imports are likely to depend on the US as well when considering that US oil imports increased by 358.1% (14.1 million barrels) from last year. This is due to a market structure that is directly influenced by the price increases in the US propane market.